Why was the short-term capital gains tax increased in the budget?
While presenting the budget for 2024-25, Finance Minister Nirmala Sitharaman tried to please almost all sections of the society, but those trading in the stock market were left disappointed. The main reason for this is the government’s hike in the Short Term Capital Gains Tax (STCG Tax) rate. The biggest benefit of this tax rate goes to those who do intraday trading in the stock market. Still, when you come across this report by the stock market regulator SEBI, you will understand why the government decided to increase this tax.
SEBI recently conducted a study in which it was found that people who do intraday trading (buying and selling shares in the same trading session) in the cash stock segment. Most of them have to suffer losses. The cash stock segment generally refers to those shares which can be sold to make profits as quickly as possible. This includes the shares of most of the big companies.
Intraday traders increased by 300%, 70% suffered losses
SEBI released the report of its study on Wednesday. According to this, among all the people who did intraday trading in the equity cash segment in the financial year 2022-23, 7 out of 10 traders i.e. around 70% had to suffer losses. Whereas in 2022-23, a 300 per cent growth has been observed in the number of traders doing intraday trading in this segment. SEBI had conducted this study to understand the changing trend of people in trading in equity cash segment pre- and post-Covid. Hence, the numbers were compared with the numbers of 2018-19.
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Traders who suffered losses did more business
An interesting aspect also revealed in this study is that compared to traders who made profits, those who made losses made a much higher number of transactions than the average. Apart from this, the proportion of young intraday traders below the age of 30 has increased significantly during this period. For its report, SEBI studied data of individual traders in the equity cash segment in the financial year 2022-23. For this, data of individual clients of the top 10 brokerage firms operating in the market was analysed. These firms alone hold around 86 per cent share in the total individual traders.
The government has increased the short-term capital gains tax from 15 per cent to 20 per cent in the budget. At the same time, the long-term capital gains tax has also been increased from 10 per cent to 12.5 per cent. According to the data released by SEBI on Wednesday, the government itself must be observing these trends. Perhaps this is the reason why the government has increased the tax rate on share trading.
